How Bill Ackman and Hunter Harrison are destroying CP Rail

Financial media in Canada and beyond are singing the praises of CP Rail CEO Hunter "Hitman" Harrison after the stellar Q4 results posted yesterday.

And while the results may be stellar, the overall tone of unbridled adulation is unwarranted. Spend five minutes with a pencil and a scratch-pad and you'll see there are essentially two factors that account for Harrison's stellar results.

One is that Harrison is running the railroad with roughly 4,500 fewer employees. That's an annual payroll saving of somewhere north of $300m/year.

Harrison isn't the first business leader to come up with the idea of making fewer people do more work. What was quintessentially Canadian about previous CEO Fred Green was that he could have done the same thing but chose not to. I don't want to over-generalize and make this a contrast between US and Canadian management philosophies; there are certainly American entrepreneurs who have stopped short of squeezing the very last nickel out of every employee, just as there are Canadians who do, but on the whole, the slash and burn mentality is more American than it is Canadian.

The other factor is the exponential rise in crude-by-rail. Crude traffic has absolutely exploded for CP Rail, pun intended. That scratch pad should tell you that at 700 barrels of crude in a tank wagon at ten bucks a barrel for the average trip times the increase in crude traffic is good for another half billion or so per year.

You just solved the Ackman-Harrison miracle.

So Canada has 4,500 fewer well-paying jobs and CP Rail has a record cash hoard on hand of about $500 millions. Judging by the stories out there, the Ackman-Harrison management team intends to solve that problem with either a share buy-back or a special dividend. Either way, it's a gift the shareholders are giving themselves, and the biggest shareholder is Ackman's Pershing Square hedge fund.

While they're looting the cash reserves, Canada's rail infrastructure needs tens of billions of dollars in upgrades. A responsible corporate citizen would be investing the surplus in upgrading the infrastructure, not lining its own pockets.

Instead, Harrison, the guy who got a $50 million signing bonus for agreeing to do Ackman's dirty work, and Ackman, who was permitted by the government to rape this iconic Canadian company with a mere 14% shareholding, are roundly applauded by the sycophantic business media.

It'll be a great success story till one of those exploding crude trains takes out the downtown of a major city.

Another CP train goes off the tracks, but it's just a "little" oil spill

So don't worry about it.

Hatchet-man Hunter Harrison tells us CP Rail is "investing in technology to limit derailments."

Whew! In the nick of time, I might add!

Since he's axed 4 or 5 thousand of the guys who used to maintain those tracks I guess it's a good thing derailment-limiting technology is available to take their place.

Mr. Harrison has reaped a $50 million windfall since he climbed aboard Bill Ackman's plan to goose the share value of the venerable CPR.

Bill is doing that by firing all the workers and making the trains longer. Why did no one think of that before?

I'd guess because they were interested in running a trans-national railway in a socially and environmentally responsible way, which everybody knows doesn't cut it in this day and age.

Anyway, this makes it three spills in three months for Bill and Hunter and the little railway that used to could.

But watching the Bill and Hunter show has become a lot like watching NASCAR; we know "the big one" is coming.

Ackman's vision for CP Rail vindicated by record quarterly results!

Read it and snivel, Ackman haters. Bill Ackman's vision, being executed by $50 million man Hunter Harrison, has left the doubters in the dust.

Profit up by over 50%!

Most profitable quarter in the history of the 130 year old company!

This should secure Bill's place in the pantheon of top hedgies once and for all!

Giant killer...

The Globe and Mail is over the top with its reportage on Bill Ackman's "coup" at Canadian Pacific Railway.

"Corporate Canada has never seen the likes of Bill Ackman, a brash hedge fund manager..." the lead story in the business pages informs me.

Truth be told, corporate Canada has seen brash hedge fund managers fuck over the locals lots of times. Nothing new about the Ackman assault on CPR.

That this hedge fund twat can rattle the cage of one of Canada's premier corporations says a lot about how deficient our regulation regimen is.

It doesn't say much about anything else.

Ackman can pull this off by taking a relatively small position in CP stock and then talking the talk about "shareholder value".

Ackman's track record shows that he's only interested in shareholder value as long as it's about the shares he just bought. He's not a manager and he's not a visionary.

His vision for the CPR doesn't extend beyond goosing the share price just enough so he can get out at a tidy profit.

If he has to sow a little mayhem to make that happen, well, that's just the way he operates.